Miami arena bonds covered

The $180 million of private revenue bonds issued last month by the Miami Heat to fund a new arena have been privately insured – the first time that private bonds issued or a new arena have received an insurer’s blessing.

The bond insurance is another indication that the financial community is growing increasingly comfortable with the revenue from new sports facilities.

And what revenue.

The Heat have already leased four first of a kind courtside luxury boxes at American Airlines Arena for $500,000 each, smashing the old $300,000 record for luxury boxes leased at the new Staples Center in Los Angeles and at Madison Square Garden in New York City.

The Miami arena will have the equivalent of 65 luxury boxes – 70 percent of which are already leased – and take in $13 million a year from these suites, more than twice the average of a typical arena, said Heat President Jay Cross.

American Airlines is paying $2.1 million a year for 20 years for naming rights, Cross-added. And the team has already signed up or is negotiating sponsorships with Citicorp (soon to be renamed Citigroup), Lucent Technologies, Carnival Cruises and Florida Power & Light. The team is looking for beer and soft drink sponsors and expects to have a total of 10 sponsors when the arena opens at the end of 1999.

"The Heat’s expected revenues could fall 40 percent and they could still meet debt payments," said Larry Levitz of MBIA Insurance Corp, which insured the bonds. "Over half the arena revenue is form contractually obligated income."

The Heat’s attendance, its guarantee to play in the new arena for an extended period and its status as a pre-eminent NBA franchise impressed MBIA, Levitx said. He added that Heat owner Micky Arison personally guaranteed some of the debt.

In the past, arena revenue was not seen as solid enough to merit strong financial backing. But with most arenas now being built as revenue palaces, insurers, under-writers and investors are more open to private sports deals.

The Heat transaction is the second in which bonds backed by arena revenue received bond insurance. Refinanced bonds for the America West Arena in Phoenix received AMBAC bond insurance in mid-March. Bond insurance negates the need for costly letters of credit and grants an instant AAA rating, so interest rates paid to bond investors are lower.

Because of the lower interest rate, Cross said, the Heat do not need to worry about refinancing, as they would with a bank loan.

Perhaps the most innovative part of the new arena will be the courtside luxury boxes. These can be reached only through a tunnel that connects with a suite under the arena. Each suite has it own private parking spaces.

The bonds, underwritten by Prudential Securities, have all been sold, according to Cross. The Heat contributed $18 million for operation and maintenance of the 20,000-seat arena.